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Notice Periods and Notice Pay

In most situations it will be necessary for a party to serve notice in order to lawfully terminate a contract of employment.

The law provides for statutory minimum periods of notice depending on length of service and it is a necessary component of the written statement of terms for the employer to set out for the employee the notice obligations on each party.

For further information on notice that is served by employees see Resignation [FS10.02].

Statutory Minimum Notice

The Employment Rights Act 1996 sets out a statutory obligation on employers and employees to serve notice to terminate employment. In cases where the contract of employment provides for employers to give shorter notice than the statutory minimum the statutory provisions are effectively imported into the contract of employment and take effect as if they were the express contractual entitlement to notice.

Length of statutory notice

The statutory notice provisions only apply to employees who have been continuously employed for one month or more.

The statutory notice periods that the employer is required to provide to the employee are as follows:

  • More than one month but less than two years’ service – one week’s notice of termination;
  • More than two years but less than twelve years’ service – one week’s notice for each complete year of continuous service;
  • More than twelve years’ service – 12 weeks’ notice.

The statutory notice period that the employee is required to provide to the employer is:

  • More than one month service – one week’s notice of termination.

The above minimum notice periods apply except where the conduct of one of the parties entitled the other party to terminate the contract with immediate effect.

Contractual Notice

The agreed contractual notice obligations on either party should be expressly set out within the contract of employment or statement of particulars. However, a verbally agreed notice period can also be binding on the parties.

The contractual notice provisions must provide for a period of notice which is greater than or equal to the statutory minimum notice entitlements, otherwise it will not be enforceable and the statutory minimum periods will be substituted. Where the parties have agreed express contractual notice provisions (provided they are at least equal to the statutory minimum) the courts will enforce the parties’ contractual rights to notice. Failure to provide adequate contractual notice will therefore be a breach of contract and wrongful dismissal by an employer.

In situations where there is no express contractual notice clause the courts will apply the relevant statutory notice period or in some cases “reasonable notice” if different.

Reasonable Notice

In the absence of an express notice clause the requirement will be to provide “reasonable notice” of termination. In most cases the period of reasonable notice is likely to be the same as the statutory minimum notice requirement but this is not always the case. The courts will not assume that reasonable notice is equal to the statutory minimum entitlement and will instead look at the facts of the particular case and the contractual intentions of the parties. Relevant factors will include length of service, seniority, remuneration level, industry norms and express notice provisions of comparable colleagues.

In any case where an express notice provision is not included in the contract of employment it is open to the employee to challenge the notice period that is provided by the employer (even if the employer satisfies the statutory minimum notice requirements) on the basis that the notice was not reasonable and therefore in breach of contract and wrongful dismissal. It is therefore strongly recommended that express notice clauses are utilised, even if the intention is simply to provide for contractual notice to be equal to statutory minimum entitlements.

For full details on Wrongful Dismissal see Wrongful Dismissal [FS74].

Serving Notice

Working Notice, Garden Leave or Payment in lieu

The normal position is that during any period of notice the employment contract will continue to operate as normal, the employee will attend work and the employer will continue to provide remuneration and other contractual benefits. The employment will then terminate on expiry of the notice period.

Employers may want to reserve the contractual right to pay employees in lieu of notice. If this contractual right exists then if exercised the employment will terminate immediately rather than at the end of the notice period. The contractual provisions should specify what exactly is due to the employee if this option is exercised by the employer i.e. is the payment in lieu in respect of basic salary only or other benefits and entitlements.

The advantage to the employer of exercising the right to pay in lieu can be financial (i.e. the employment costs are less if a payment in lieu is made than they would be if the employee remained employed for the notice period and entitled to benefits etc.) but this has to be weighed up against the fact that the employer may have otherwise been able to get some useful service out of the employee during the notice period if worked. More commonly the decision to pay in lieu is not financial but instead a question of relations, morale and business interests as an influential employee may have a negative impact during a worked notice period and/or they have continued access to information and systems that the employer would rather cut short.

If there is no pay in lieu of notice clause in the contract, it is a breach of contract to make a payment in lieu. This can have the effect of preventing the employer from seeking to enforce other contractual terms such as restrictive covenants. Legal advice should be sought if you are considering making a payment in lieu of notice without a contractual right to do so.

An employee may ask to leave early, commonly because they have a new job to go to and their new employer has requested them to start sooner than the end of their notice period. If the employer is prepared to agree to this shorter notice period it is best practice to expressly vary the notice period in writing, see Agreed Early Release from Notice [SL10.01].

Another option for employers is to continue with the notice period but exercise a contractual right to put the employee on garden leave. When an employee is on garden leave their employment continues until the end of the notice period and they are entitled to remuneration and contractual benefits in the usual way, but they are not required to attend work. The contractual terms should specify exactly what the employee is and is not permitted to do during garden leave, it is common for the employee to be instructed to not attend the workplace, to return company property and not to contact business contacts and colleagues.

For an example of a letter placing an employee on garden leave see Letter exercising right to place employee on garden leave [SL10.02], this letter should only be used where an existing contractual right exists.

If there is no existing contractual right to place an employee on garden leave then doing so may be a breach by the employer of the employee’s implied contractual right to work, this is most likely to be the case in particularly specialised roles where regular use of skills and knowledge is important. If you are considering placing an employee on garden leave, without the contractual right to do so, we recommend that you speak to your legal advisor.

How to effectively give notice

As a general rule notice can be given verbally or in writing but it must be clear and unambiguous so that both parties understand what has taken place. It is possible to contractually agree and expressly specify the mechanics of how notice must be served, commonly the requirement would be for notice to be served in writing.

When serving notice on an employee it is essential that notice is effectively communicated, the notice is not valid until this requirement has been satisfied. Effective notice should specify the actual date on which the employment will terminate. A warning that dismissal is likely or even inevitable by a certain date will not amount to effective notice.

If an employer intends to exercise the right to pay in lieu of notice then the employer must specifically communicate that it is exercising this right and make the payment in accordance with the clause.

Calculating the date of expiry of notice

For the purposes of calculating the notice period the day upon which notice was actually served will be discounted. For clarity it is recommended that when notice is served, however done, this is confirmed in writing and the actual date of termination is specified.

Notice periods expressed in weeks should be observed i.e. if one full weeks’ notice is effectively given on Friday 1 May then the last date of employment will be Friday 8 May.

Where notice is expressed in months then the corresponding date rule applies i.e. if three months’ notice is effectively served on 1 May then the last date of employment will be 1 August, therefore fluctuation in the number of days within each month is irrelevant. An additional complication can arise where notice is effectively given and expires where there is no corresponding date in the month of expiry, i.e. one month’s notice is effectively given on 31 August and there is no 31 September. In this case the employment will terminate on the last day of the month in which the notice expires i.e. 30 September in the example.

Can notice be withdrawn?

Once validly given notice of termination of employment cannot be withdrawn unilaterally. If the employer has given notice to an employee (for example on a redundancy dismissal) and then decides that it does not want the dismissal to go ahead, the employee would have to agree that the notice can be treated as withdrawn.

Dismissal during notice period

It is possible to dismiss an employee summarily/without notice for gross misconduct during the notice period, bringing the termination date forward. This may be attractive to employers who are in the process of conducting a disciplinary procedure when the employee resigns on notice and the employer continues with the disciplinary process and reaches a decision to dismiss summarily.

Similarly, it is possible for an employee to be constructively dismissed while serving their notice. A resignation by the employee in response to a fundamental breach of contract on the part of the employer will therefore bring the date of termination forward.

Notice Pay

During the notice period, subject to any exercise of a right to pay in lieu of notice or invoke garden leave provisions, the contract of employment continues to operate in the normal way and therefore the employee is obliged to attend work and the employer is obliged to provide remuneration and benefits up until the termination date.

Notice pay must be paid to the employee (calculated as set out below depending on whether the employee works normal working hours or not) and applies even when the employee is absent for specified reasons, although certain payments can be offset against the notice pay entitlement.

There is an exception which applies where the employee's contractual notice period is at least one week more than statutory notice. If this is the case then the employer will not be liable for notice pay (but may still be liable for other pay entitlements – see further below).

Employees with Normal Working Hours

For employees who have normal working hours, they are entitled to be paid during their statutory notice period if ready and willing to work (even if no work is actually provided by the employer). This right to be paid full notice pay extends to situations where the employee is (i) incapable of work because of sickness or injury, (ii) absent due to exercising their right to annual leave entitlement in accordance with the contract or (iii) absent wholly or partly because of pregnancy, childbirth, adoption leave, parental leave, shared parental leave or paternity leave.

The obligation on the employer to pay the employee notice pay can be offset against any payment of sick pay, statutory sick pay, maternity pay, statutory maternity pay, paternity pay, statutory paternity pay, adoption pay, statutory adoption pay, shared parental pay, statutory shared parental pay or holiday pay (depending on the circumstances).

Where the employee has normal working hours and is unable to work during the notice period for any of the reasons set out in (i) to (iii) above, the employer is liable to pay them their average hourly rate of remuneration during their notice period. This rate is produced by dividing the employee's normal weekly hours by a week’s pay, with no upper limit on a week’s pay.

Employees with no Normal Working Hours

Those employees who have no normal working hours are entitled to be paid during the notice period if they are "ready and willing to do work of a reasonable nature and amount to earn a week's pay". However the requirement to be "ready and willing to do work" does not apply during any period in which the employee is (i) incapable of work because of sickness or injury, (ii) absent due to exercising their right to annual leave entitlement in accordance with the contract or (iii) absent wholly or partly because of pregnancy, childbirth, adoption leave, parental leave, shared parental leave or paternity leave.

Any payments to the employee during the notice period in respect of a time when they are absent from work for any of the reasons (i) to (iii) will be regarded as remuneration paid by the employer to the employee where such payments are by way of sick pay, statutory sick pay, maternity pay, statutory maternity pay, paternity pay, statutory paternity pay, adoption pay, statutory adoption pay, shared parental pay, statutory shared parental pay or holiday pay (depending on the circumstances).

Where the employee does not have normal working hours and is unable to work during the notice period for any of the reasons set out in (i) to (iii) the employer is liable to pay the employee a week's pay in respect of each week of the notice period.

Offset

Any of the above mentioned payments made to the employee during the notice period on account of their absence will be offset against the amount of notice pay due.

Special provisions apply where the employee is absent on sick leave during the notice period and is in receipt of certain benefits, allowing the employer to make a deduction in respect of the benefit from the sick pay paid to the employee. Advice should be obtained in these circumstances.

Exception – Employee not entitled to notice pay

The right to notice pay does not apply in situations where the contractual notice that the employer is required to give to terminate the employment of the employee is at least one week more than the statutory notice entitlement. This is the rule to apply even in cases where in fact the notice has been served by the employee rather than the employer – you are still looking at the difference (if any) between the notice that the employer would have had to serve compared with the statutory notice.

This exception means that employees who benefit from longer contractual notice periods may receive less (or no) pay during notice periods where they are absent from work due to sickness, maternity, etc. Rights to SSP, SMP, etc. may still apply but the right to full notice pay will only apply if the contractual notice entitlement is less than a week greater than the statutory notice.

These provisions on entitlement to notice pay and the exception to the entitlement are complex and it is recommended that legal advice is obtained. For more detail on sickness absence during notice periods see Sickness Absence and Ill Health Overview [FS3.01].

This document has been created by, or on behalf of ESP Ltd, as a general document and as a guide in relation to its subject matter and has not been bespoke drafted for you or the specific circumstances in which you are looking to use it. Prior to using this document and undertaking any HR process you must consult your organisation’s own policies and procedures to ensure that you do not do anything in conflict with your own policies and procedures.  If in any doubt as to how to use this document or, if you require any legal advice, please feel free to contact ESP Ltd on 0333 006 2929 and our legal team will be more than happy to assist.  ESP Ltd will not be liable in any way for any actions undertaken by you or your use of this document unless we have been consulted regarding your use of this document as legal advisor to your business or have bespoke drafted any documentation in response to a specific support request.